Insolvency is one of those elements of business that will never leave us. Just as some companies thrive in the market, others struggle, and of those, some are always destined for insolvency. While you could be forgiven for thinking that insolvency rates stay the same everywhere, that’s simply not true. In fact, according to Atradius, the leading trade credit insurer, there is an imbalance in the global economy that will cause some countries to experience an increase in insolvent businesses and the numbers for others to decline.
In their latest insolvency forecast, they released their predictions for 22 major business markets, and while their overall prediction is for a drop in the number of insolvent companies in 2016, that drop will be extremely modest. However, the potential for a new global economic downturn and the continued low price of oil around the world pose a threat to business. However, they remain with an expected change of -5% in aggregate insolvencies.
More interesting is the news that the total number of bankruptcies expected for 2016 is 67% higher than before the 2007 recession, and in some key countries it is surprisingly higher. Consider for a moment that Portuguese companies are 440% more likely to file for insolvency than in 2007, Italian companies are 280% more likely and Spanish companies are 250% more likely. Clearly, the economic recovery has not affected all nations equally.
The story extends to Greece, which had major economic problems in 2015, culminating in its parliament’s acceptance of a Eurozone recovery deal. It is understandable that in 2015 there was a 10% increase in company bankruptcies, but in 2016 another 5% increase is expected, which makes it a very difficult time to be a Greek company.
Countries such as Switzerland, Luxembourg, Norway and New Zealand are expected to see no improvement in insolvency rates in 2016. While the UK will only see a 1% improvement in the number of insolvent companies, representing a drastic drop with compared to the 9% improvement. witnessed during fiscal year 2015.
All of this is contingent on a series of highly unstable factors in the global economy, particularly China’s. The country has registered a series of revisions in its growth during the year and has had to suspend its stock market on numerous occasions due to sharp falls in its value. If China recovers from these setbacks, we could see a completely different kind of global economy, one that posts good growth despite dire predictions.
Jason Curtis, Atradius’ Chief Commercial Officer, said of the report: “The challenging external environment combined with low commodity prices is putting pressure on global markets, increasing the risk of insolvency despite strengthening national economies This is a clear warning shot for companies that need to be vigilant about trade risks even as the economy recovers.
Despite improvements in insolvency statistics for the UK and Ireland in 2015 and expected improvements again for 2016, the market remains challenging with insolvency levels still significantly higher than before the recession. Few companies are able to absorb the impact of a failed customer and companies must continue to protect themselves and have strong credit management systems in place.”
